What To Look For In A Merchant Cash Advance Contract


What To Look For In A Merchant Cash Advance Contract

Getting a merchant cash advance can be a great way for a business to get quick access to capital, but it’s important to fully understand the terms before signing on the dotted line. The contract dictates everything from the fees and repayment structure to recourse options if you default, so read it carefully. Don’t let the urgency of needing fast cash rush you into a bad deal.Here are some key things to look for in a merchant cash advance contract:

The Advance Amount and Fees

Of course, you’ll want to confirm the amount of money you’re getting upfront and any one-time fees for obtaining the advance. Make sure the contract states the full advance amount you’ll receive after any fees are deducted. Common fees include:

  • Origination fee – 1-5% of the advance amount
  • Underwriting fee – $495 – $1,995
  • ACH fee – $35 per attempted collection

The origination fee reduces the net amount you receive. Underwriting and ACH fees add to your overall costs.<h3>The Repayment Structure</h3> Merchant cash advances are repaid through a fixed percentage of your daily credit card sales, which will be automatically debited from your account daily or weekly. The contract should clearly state:

  • The fixed percentage taken from each sale
  • The frequency of debits (daily, weekly, etc)
  • Any minimum payment amounts

A higher percentage means you repay faster. Minimums ensure steady payments even if sales dip. For example, the contract could specify 15% of daily sales + $100 minimum payment debited daily.

The Estimated Repayment Period

The contract should provide an estimate of how long it will take to fully repay the advance at the stated repayment percentage. However, this is just an estimate. If sales drop, it takes longer. If sales increase, you repay faster.Make sure you’re comfortable with the estimated repayment period. For some businesses, a repayment term of 9-12 months is reasonable. Others may prefer 6 months or less.

Early Repayment and Prepayment Penalties

Many merchants want the option to repay their advance early if possible. Make sure the contract specifies whether early repayment is allowed and if any prepayment penalties apply. Many providers charge fees equal to a percentage of the remaining balance, often 2-5%.You generally want the ability to prepay with little or no penalties.

Personal Guarantees and Collateral

Most merchant cash advance contracts require a personal guarantee from the business owner. This makes you personally responsible for repaying the advance if the business defaults.The contract may also stipulate collateral like a lien on business assets. Read the fine print to understand what personal guarantees and collateral are required.

Default Clauses

Understand what constitutes default and the recourse the provider has if you default. For example, missing several consecutive payments may trigger default fees and allow the provider to debit your account for the full remaining balance.Make sure you’re comfortable with the default terms and know the risks if your business has problems making payments.

Cancellation Terms

There should be a section detailing how and when the agreement can be cancelled. Many contracts auto-renew after the initial term unless one party notifies the other of intent to cancel within a specified timeframe, often 30-60 days.Review the cancellation policy so you know how to terminate the agreement if needed.

Key Contract Terms What to Look For
Advance amount & fees Clear terms with no hidden costs
Repayment structure Reasonable percentage and frequency
Estimated repayment period Comfortable timeline for your business
Early repayment Allowed with low or no penalties
Personal guarantees/collateral Fully understand risks and liability
Default clauses Reasonable terms if payments missed
Cancellation terms Clearly defined cancellation process

The bottom line is you need to protect yourself and fully understand the agreement before accepting a merchant cash advance. Don’t let a sales rep pressure you into signing on the spot. Take the contract home to review carefully and consult a lawyer if anything seems unclear. This quick financing should help, not hurt your business in the long run.

Do Your Due Diligence on the Provider

In addition to scrutinizing the contract terms, it’s critical that you vet the merchant cash advance provider thoroughly before signing. There are many reputable companies that offer fair deals and customer service. However, others engage in predatory lending at outrageously high costs.Here are some tips for checking out a provider:Search online reviews – Are there a lot of complaints about hidden fees or aggressive collections?

  • Compare offers – Get proposals from multiple providers to compare costs.
  • Check their standing – Are they an accredited Better Business Bureau member in good standing?
  • Ask for references – Reputable companies will gladly provide client references.
  • Review financials – Established providers should share financial statements.
  • Check state licensing – Most states require licensing for financial services companies.


Taking the time to vet providers protects you from getting in bed with unscrupulous or unstable companies. As the old saying goes, if an offer seems too good to be true, it probably is.

Understand the Pros and Cons

While merchant cash advances allow quick access to capital, they do come with drawbacks compared to traditional small business loans. Consider these pros and cons when deciding:


  • Fast application and funding, often in a week or less
  • Based on business sales, not personal credit score
  • Flexible repayment that rises and falls with revenue
  • No collateral required
  • Funds usable for any business purpose


  • Very high APR equivalent of 60-300%
  • Daily/weekly repayment can strain cash flow
  • No interest deductions on taxes
  • Easy to get trapped in debt cycles
  • Aggressive collections if defaulted

The right advance product at the right terms can be beneficial. But it’s not a good solution for all situations. Think carefully and run the numbers to determine if it makes sense for your business.

Have an Attorney Review the Contract

Before signing any merchant cash advance contract, it’s highly recommended you have a lawyer review it. An experienced attorney can identify areas of concern and negotiate better terms on your behalf. For a few hundred dollars in legal fees, you can potentially save thousands and avoid nasty surprises.Some key areas where an attorney can help include:

  • Lowering rates and fees
  • Adding flexibility for early repayment
  • Limiting personal liability
  • Tightening default clauses
  • Negotiating cancellation terms
  • Ensuring FDIC compliance

Having counsel review and amend the contract before signing puts you in a much safer position. Don’t leave yourself unprotected legally and financially.

Assess the Impact on Your Business

Beyond evaluating the provider and contract terms, you need to assess the potential impact of the merchant cash advance on your business.


  • Can you comfortably afford the daily/weekly payments?
  • How will decreased cash flow affect operations and growth plans?
  • What backup plan do you have if sales decline?
  • What will happen if you can’t repay as projected?
  • How long until the business returns to stability?

Being realistic about both your ability to repay and the financial trade-offs will help prevent merchant cash from becoming a burden. Don’t let short-term needs create long-term headaches.

Have a Plan to Pay It Off

Ideally, you should go into a merchant cash advance with a plan to pay it off in a reasonable timeframe. For instance:

  • Use the capital to fund a marketing campaign that will increase sales.
  • Invest in equipment/technology that improves productivity and revenue.
  • Expand your facility to support more customers and sales.
  • Hire additional staff to drive growth.

The key is using the capital in ways that allow you to repay the advance quickly while minimizing the out of pocket costs. Receiving the money is only step one – making it work for your business is critical.With the right contract terms and a well-thought out repayment plan, a merchant cash advance can be an effective and flexible financing option. But it’s not a decision to rush into. Taking the time to understand the agreement, assess the impact, and plan your repayment will ensure this quick financing catalyzes your business growth rather than cripples it.

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